Friday 10 February 2017 10.11 EST
First published on Friday 10 February 2017 00.00 EST

The founders of Mossack Fonseca, the law firm at the centre of the Panama Papers scandal, were arrested in Panama City on Thursday as the country’s attorney general launched a probe into their alleged connections with Brazil’s sprawling Lava Jato corruption scandal.

Juergen Mossack and his colleague Ramon Fonseca, a former adviser to Panama’s president Juan Carlos Varela, were taken into custody and transferred to police cells in the capital overnight for further questioning on Friday, their defence attorney Elías Solano was quoted telling reporters.

Panamanian prosecutors raided the offices of Mossack Fonseca on Thursday. In a press conference on Kenia Porcell, Panama’s attorney general, said she had information that identified Mossack Fonseca “allegedly as a criminal organisation that is dedicated to hiding money assets from suspicious origins”.

She said the firm’s Brazilian representative had allegedly been instructed to conceal documents and to remove evidence of illegal activities related to the Lava Jato case.

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“Put simply, the money comes from bribes, circulated via certain corporate entities to return bleached or washed to Panama,” said Porcell. She explained charges had been formulated against four individuals, including the Mossack Fonseca partners.

Porcell thanked the authorities in Brazil, Ecuador, Colombia, Peru, Switzerland and the United States for their part in a collaboration which she said began over a year ago.

The investigation is understood to be seeking possible links to the Brazilian engineering company Odebrecht, Reuters reported. Ramon Fonseca, a partner at Mossack Fonseca, denied his firm had a connection to Odebrecht, which has admitted to bribing officials in Panama and other countries to obtain government contracts in the region between 2010 and 2014.

“Mossack Fonseca has no relationship with Odebrecht, nor with any other Lava Jato company,” Fonseca told reporters, referring to companies involved in the so-called Lava Jato probe centered on Brazil’s state-run oil company Petróleo Brasileiro SA. “They’re using me to divert attention,” he said.

Fonseca also accused the president of Panama, Juan Carlos Varela, of directly receiving money from Odebrecht, Latin America’s largest engineering company. “He [Varela] told me that he had accepted donations from Odebrecht because he could not fight with everyone,” Fonseca said, without giving more details.

At a media conference, Varela denied he received donations from Odebrecht, saying he would make all donations to his political campaign public on Friday.